“Long bitcoin” is no longer considered the most crowded trade by a group of big-money fund managers surveyed by Bank of America.
The cryptocurrency has been overtaken by commodities, with 26% of fund managers saying “long commodities” is the most crowded trade, putting “long bitcoin” in a tie for second place with “long tech stocks.” (Both received 21% of the vote.) Last month, 43% of fund managers said “long bitcoin” is the most crowded.
Despite the world’s largest cryptocurrency losing its first-place title, a growing number of managers told BofA bitcoin is in a bubble. 81% of managers said bitcoin is in a bubble, compared to about 75% of managers who said so in the May survey. These bubble concerns come even as bitcoin has lost roughly 37.5% of its value from its record high near $65,000 in April.
Though at its current levels near $40,000, bitcoin is up 38% year-to-date and 329% in the last twelve months.
The cryptocurrency’s rally in the last few days has been aided by comments made by billionaire investor Paul Tudor Jones. On Monday he told CNBC he likes bitcoin as a “portfolio diversifier and store of wealth.”
“I want to have 5% in gold, 5% in bitcoin, 5% in cash, 5% in commodities. I don’t know what I want to do with the other 80% at this point in time. I want to wait and see what the Fed’s gonna do,” Jones said, referring to the policy decision the central bank is set to make during its two-day meeting beginning today.
Bank of America surveyed 224 panelists with $667 billion in assets under management from June 4-10.
Cryptocurrencies look “bubbly” and have many of the classic markers of a speculative mania, according to a research report from TS Lombard.
The research firm spelled out clear parallels with previous financial bubbles and cryptocurrencies, “especially Tulipmania,” according to the report.
TS Lombard pointed out that the surge in tulip prices in 1636 happened amid a pandemic, just like the recent surge in crypto happened amid the COVID-19 pandemic as “bored bros” put their stimulus checks into the speculative asset class.
During the tulip bubble, “many tulip traders had excess cash, inheriting it from relatives who had died in the Plague,” according to the report. But the speculative price surges could reverse as that extra spending money dwindles and the pandemic subsides.
“If a big part of the price run-up is speculative, it could reverse as policy support fades and people return to their offices,” the report explained.
Many current investors in cryptocurrencies like bitcoin believe it will serve as a hedge against rising inflation, but the report concludes that there is no evidence that will play out, as cryptocurrencies have been positively correlated with equities.
“In terms of their diversification properties, it is not clear cryptocurrencies will provide the ‘insurance’ characteristics investors are looking for,” the report explained. Bitcoin prices plunged 32% last March amid the onset of the pandemic, almost exactly the same drawdown of the S&P 500.
For an inflation hedge that has proven its worth during an extended period of rising prices, TS Lombard points investors to gold, which did well during a period of high inflation in the 1970s.
“To the extent investors are worried about medium-term inflation risks, they should probably hedge this threat using traditional securities such as gold and various subsectors of the equity market, rather than punt around in volatile crypto assets,” the report said.
But cryptocurrencies are not going away, especially as institutions get more involved in the space, and some aspects of the DeFi capabilities are “intriguing,” according to TS Lombard. The firm points investors to ethereum, as it could “provide the infrastructure for an entirely new global financial infrastructure and has many potential applications in the finance industry beyond the token’s use as a ‘safe asset,” the report said.
“In buying ether, institutional investors are arguably buying a ‘ticket’ to access the programmable technology that underpins it,” TS Lombard concluded.
Cryptocurrencies are like the dotcom space of the 1990s, and bitcoin may well be overtaken by competitors in the way Microsoft and Google overtook the once-dominant Netscape Navigator, the chief investment officer of Société Générale’s UK private bank has said.
Fahad Kamal, the investment boss at SocGen’s Kleinwort Hambros bank, told Insider he is convinced the blockchain technology upon which bitcoin runs will be very important over the next decade.
But he said regulatory threats, its high energy use, and competition from other cryptocurrencies could mean bitcoin is not a part of the landscape over the next 10 years.
“The cryptocurrency space today looks very similar to the internet space in 1997,” Kamal said. “In 1997, we thought Netscape Navigator was by far the most advanced sophisticated browser and there would never be anything to compete with that. And obviously here we are, Netscape is long [gone].”
He added: “In 10 years, I have no doubt that blockchain technology is going to be a very serious force in our lives. I have much, much less conviction or faith in whether bitcoin will be around that long.”
Kamal said competition was a threat. “There are other cryptocurrencies… which are arguably much better in their construction and in their underpinnings. Ethereum, for example.”
He said bitcoin’s massive energy consumption and use in illicit finance mean it could become a target for strict regulations, similar to what is being considered in Turkey, where the government is cracking down on crypto use.
Earlier on Wednesday, Goldman Sachs said in a note bitcoin’s lack of real uses and its weak environmental scoring “makes it vulnerable to losing store-of-value demand to another, better-designed cryptocurrency.”
But other people say bitcoin’s sheer market size – the combined value of all bitcoins is more than $1 trillion – mean it is unlikely to fade away.
“Shark Tank” star and investor Mark Cuban has argued bitcoin is akin to Amazon, which survived the dotcom bubble popping in 2000 and went on to dominate global retail.
In January he tweeted: “Watching the cryptos trade, it’s EXACTLY like the internet stock bubble. EXACTLY. I think BTC, ETH, a few others will be analogous to those that were built during the dotcom era, survived the bubble bursting and thrived, like AMZN, EBay, and Priceline. Many won’t.”
Bitcoin could gain much higher before the current bull market ends based on historical price movements, says a Kraken Intelligence market report published Friday.
Although bitcoin is quickly approaching resistance, it remains several tens of thousands of dollars away from entering into “overbought” territory, Kraken said. If bitcoin were to surpass $75,000 in the next few months, historical price action suggests bitcoin would then be close to the top of the cycle.
The cryptocurrency has pulled back from its all-time high above $58,000 on February 21, but it still finished the month 37% higher. The coin is up 62% year-to-date as of Friday as it hovers just below $48,000.
According to Kraken, bitcoin is now trending in a manner most similar to the first quarter of 2013, bitcoin’s best first quarter on record. If the trend continues, the first quarter of 2021 “could be a historic quarter with a relatively outsized return.”
“By plotting a logarithmic growth curve that connects BTC’s prior market cycle tops (resistance) and bottoms (support) and by making assumptions about how severe BTC will correct upon hitting a cycle high, one will find that BTC likely has plenty of upside before entering a bear market,” the report says.
The report comes as some investors voice concerns that bitcoin’s rapid acceleration is a clear sign the cryptocurrency is in a bubble waiting to burst. Michael Burry said the coin is a “speculative bubble that poses more risk than opportunity” in a tweet Monday that has now been deleted.
On Wednesday Kraken CEO Jesse Powell told Bloomberg a $1 million as a price target within the next 10 years is “very reasonable.”
Monday’s slide is a sign of the wariness of the cryptocurrency’s rapid ascent. Bears have long said bitcoin is in bubble territory, comparing the recent rally to what played out in 2017, when bitcoin plunged by 45% shortly after reaching highs. In 2020, bitcoin surged by 305%.
Will Hobbs, the chief investment officer of Barclays Wealth & Investments, told Insider that he was steering clear of the cryptocurrency because of its wild swings – a view that many money managers share.
Meanwhile, bitcoin has gained institutional support in the past few weeks with announcements from Tesla and Mastercard, among others.
MicroStrategy, the first corporation to directly purchase bitcoin, now owns 70,784 bitcoin, worth more than $3.5 billion. Michael Saylor, the CEO of the enterprise software company, has long advocated bitcoin, viewing the cryptocurrency as a hedge against a devaluation of the US dollar.
On Sunday, Saylor said in a tweet to his half a million followers, “It is only speculation if you don’t understand the technology or why you need it.”
As for Tesla, Dan Ives, an equity analyst at Wedbush Securities, estimated that the electric-car maker had racked up profits of $1 billion on its $1.5 billion bitcoin investment.
“Based on our calculations, we estimate that Tesla so far has made roughly $1 billion of profit over the last month from its Bitcoin investment given the skyrocketing price of Bitcoin, which now tops a trillion of market value,” Ives wrote in a note published Saturday.
Tesla CEO Elon Musk has been a vocal supporter of the cryptocurrency, most recently describing it as “a less dumb form of liquidity than cash.” On Saturday, Musk did acknowledge that the price of bitcoin seemed high.
Many think that bitcoin’s dizzying rally could have been driven by buyers looking to hedge against inflation or simply by people trading the cryptocurrency.
Still, some bitcoin bulls have told Insider that they expect the cryptocurrency to rise even more, to as high as $250,000 in the next three years.
The drop comes a day after the cryptocurrency hit a new record of $58,042 on Sunday, for a gain of over 100% year-to-date. The cryptocurrency on Friday reached a market capitalization of $1 trillion for the first time.
Monday’s slide is a sign of wariness of the cryptocurrency’s rapid ascent. Bears have long said bitcoin is in bubble territory, comparing the recent rally to what played out in 2017, when bitcoin plunged 45% shortly after reaching new highs.
Meanwhile, the last few weeks have seen bitcoin gain additional institutional support, from Tesla to Mastercard, among others.
MicroStrategy, the first corporation to directly purchase bitcoin, now owns 70,784 bitcoin, roughly worth more than $3.5 billion. Chief executive of the enterprise software company, Michael Saylor, has long been an advocate of bitcoin, viewing the cryptocurrency as a hedge against a potential devaluation of the US dollar.
On Sunday, Saylor fired a tweet to his half a million followers: “It is only speculation if you don’t understand the technology or why you need it. #Bitcoin“
As for Tesla, an equity analyst at Wedbush Securities estimates that the electric car maker has racked up paper profits worth $1 billion on its $1.5 billion bitcoin investment.
“Based on our calculations, we estimate that Tesla so far has made roughly $1 billion of profit over the last month from its Bitcoin investment given the skyrocketing price of Bitcoin, which now tops a trillion of market value,” analyst Dan Ives wrote in a note published Saturday.
Many believe the dizzying rally of the cryptocurrency in recent weeks could have been driven by a couple of things: buyers looking to hedge against inflation or simply by individuals trading the cryptocurrency.
Still, some bitcoin bulls have told Insider they expect the cryptocurrency to rise even further, as high as $250,000 in the next three years.
The ultimate time to buy bitcoin is when no one is talking about it, according to one early adopter.
“The best time to buy bitcoin is whenever blood is on the street, everyone’s panicking, and no one’s talking about it,” the investor, who prefers to remain anonymous, told Insider in a phone interview from Manila, Philippines. “That’s the ultimate time to buy.”
In 2013, he made an initial purchase of 2.5 bitcoins from a seller who went by the name “Mang Sweeney” on LocalBitcoins.com when the cryptocurrency was trading at $100 per coin. “Mang” denotes a sign of respect in the local language in the Philippines.
At the time, the platform allowed face-to-face meetings, after which the seller would transfer the cryptocurrency on-the-spot via their laptop or mobile. Mang Sweeney was already trading bitcoin when it was worth $10 a coin since speculative buying and selling was popular even then, according to the anonymous buyer.
Still, online interest in bitcoin in 2013-14 was nowhere near current levels. A chart below shows how Google searches for “bitcoin” in the Philippines have risen steadily since that period, then hit a peak in late 2017 when its price shot to a record high. It declined throughout 2018, but has returned in the last year.
“People forget this isn’t the first bubble,” the investor said. “Until people understand the technology of it, it will always be a speculative asset.”
The early bitcoin buyer said he doesn’t advise friends and family to trade the token when it’s stuck in bubble territory. “When no one wants to touch it, that’s when you buy it. Not when people are talking about it,” he said.
Bitcoin’s deflationary nature discourages using it as a real currency, according to him. He lost 16 bitcoins in the Japanese cryptocurrency exchange Mt. Gox, one of the few exchanges that early adopters could trade on. It closed abruptly in 2014 following its collapse after hackers apparently raided the exchange. Almost 850,000 bitcoins belonging to investors were lost.
“Finance guys” who are talking up the $100,000-$150,000 level, according to him, are actually unloading their bitcoin investments bit by bit while saying it’ll get to a certain price because some of them have already accumulated large amounts.
“The only reason I would tell people to just dabble in it is because it’s important to understand how it works and how to take care of it. If you don’t know your way around passwords or simple two-factor authentication then you’re going to get creamed. People will steal your bitcoin,” he warned.
But there are voices cautioning investors who are beginning to view bitcoin as digital gold.
“For bitcoin to be considered in a portfolio and to become an investable asset, similar to gold, the asset would need to improve the risk-return profile of that portfolio,” said Gerald Moser, chief market strategist at Barclays Private Bank. “This seems a tall order.”
While it is near impossible to forecast an expected return for bitcoin, its volatility makes the asset almost “uninvestable” from a portfolio perspective, he said.
Separately, Janet Yellen, nominee for treasury secretary, suggested on Tuesday that lawmakers curtail the use of cryptocurrencies as they’re used “mainly for illicit financing.”
Bitcoin has more than doubled in less than a month, leaving analysts and investors stunned and concerned about a possible market bubble.
In many ways the token’s rally in recent months is crucially different than the surge seen three years ago, as buyers now range from casual day traders to fund managers handling billions of dollars in assets.
Easy monetary conditions and trillions of dollars in fiscal stimulus have led some investors to view the token as a new inflation hedge.
Detailed below are the factors driving bitcoin higher, and why experts don’t think the cryptocurrency will crash as it did in 2017.
It took nearly 11 years for bitcoin to reach $20,000 per coin for the first time in 2017. Just 22 days later, the world’s most popular cryptocurrency has surged another $20,000, and its momentum is so far holding strong.
Bitcoin’s rapid climb back in 2017 was swiftly followed by sell-offs that erased the bulk of its quickly earned gains. But no such trend has emerged this time around, and experts say a combination of factors fueled the token’s surge through 2020 and will continue to boost bitcoin in the new year.
Detailed below are three reasons behind bitcoin’s price spike, and a discussion of why it’s unlikely to suffer a crash similar to that seen two years ago.
(1) Fear of missing out
While passionate retail investors powered bitcoin’s 2017 rally, public companies sparked the token’s latest climb. MicroStrategy started a chain reaction when it bought $425 million worth of bitcoin in August and September, Jimmy Nguyen, president of the Bitcoin Association, told Insider. The move opened the door for other public companies to view bitcoin as a viable reserve asset.
Square followed in October with its own $50 million purchase. Still, it wasn’t until PayPal adopted bitcoin that prices began to rocket higher. The company announced on October 21 that it would allow its hundreds of millions of users to buy, sell, and hold bitcoin. The token leaped to its highest level since July 2019 as investors saw the adoption as a key step forward for bitcoin’s widespread use.
“People are seeing a move to it as a reserve asset, knowing there’s a limited supply of Bitcoin, and saying, ‘okay, I want my piece of it before it goes too high in price,” Nguyen said.
The subsequent rise in bitcoin prices then pulled institutional investors into the fray. Fund managers who previously balked at the token and its violent price swings feared they were missing out on strong returns and began shifting some cash into the cryptocurrency.
Institutional investors have since pushed billions of dollars into the cryptocurrency market. Their involvement has played the biggest part in the token’s meteoric rise through the end of 2020, according to Douglas Borthwick, chief marketing officer at digital-asset trading platform INX.
“If you don’t have something in your portfolio that’s performing well, then you’re not going to perform well. People are going to leave your fund,” Borthwick told Insider. “You’ve got larger and larger position sizes chasing a smaller and smaller number of bitcoin in circulation.”
(2) Demand for inflation hedges
Bitcoin may first seem completely disconnected from the coronavirus pandemic, but the health crisis’ fallout has played a critical role in supporting token prices. Governments around the world passed several trillion dollars worth of fiscal stimulus to pad against the pandemic’s economic damage.
The influx of fresh currency and easy monetary conditions boosted the case for bitcoin as a hedge against inflation, JPMorgan analyst Nikolaos Panigirtzoglou said in November. A limited supply of 21 million tokens and insulation from policy decisions saw the token serve as an alternative to gold and other hedge assets.
“That money printing has meant that everyone in the world has been searching for hard assets to invest in, something that isn’t going up in terms of supply,” Borthwick said.
Companies and institutional investors warming up to bitcoin has given legitimacy to an asset recently known more for its murky uses than its investment potential. During the token’s 2017 rally, those less familiar with cryptocurrencies associated them with “nefarious activities,” Borthwick said.
PayPal’s adoption and the influx of institutional funds lend bitcoin new legitimacy and interest among retail investors, Borthwick added. And just yesterday, the US Office of the Comptroller of the Currency said national banks can use blockchain networks and stablecoins for payments, further legitimizing digital currencies.
“The more big names get involved in the space and the more regulators start writing regulations about it, the more it becomes a mainstream asset,” Borthwick said.
Curiosity among everyday investors exploded through the end of last year. Global search interest for bitcoin more than tripled from early October to early January, according to Google Trends data. Celebrities ranging from actress Maisie Williams to rapper Meek Mill have tweeted about entering the cryptocurrency market. In a matter of months, the crowd pushing cash into bitcoin has evolved from fund managers and crypto-fanatics to practically everybody else, Borthwick said.
“There’s an absolute land rush to get invested in the crypto space,” he added. “It’s no longer friends and family and old friends from college.”
Bitcoin’s rapid doubling has naturally prompted some investors to deem the token a bubble. JPMorgan said Monday that the token’s rally moves it “into more challenging territory,” and that a continued climb at its current pace would likely “prove unsustainable.”
The market very well may be “prone to a sort of correction,” but it’s unlikely to resemble that seen three years ago, Nguyen said. Institutional investors are poised to maintain their bitcoin positions for fear of prematurely selling and missing out on additional returns.
Growing interest in blockchain and cryptocurrencies also protects prices from returning to the recent lows, Borthwick said
“What you’re talking about here is the adoption of something by everybody in the world over a very short period of time,” he said. “When you talk about a new technology, I don’t think there ever is such a thing as a top.”
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In 2013, Hill had a special interest in the then 4-year-old cryptocurrency, since her work primarily focused on technology and data privacy. Tech junkies were just getting excited about bitcoins back then, so she decided to explore its value in the real world by testing what it would be like to live on the currency for a few days.
Hill bought some bitcoins for $136 each on the cryptocurrency exchange Coinbase, hoping to find ways she could use her new “money.”
Though she lived in San Francisco, a hot spot for tech startups and companies, there were limited options for her to spend any cryptocurrency. During that week, she lost 5 pounds simply because she was tight on food and transport options. She was also “constantly caffeine deprived” because no coffee seller seemed to accept bitcoins.
Hill decided to celebrate the last night of her experiment by hosting a dinner for at least 15 strangers at a sushi restaurant called Sake Zone – one of the few places that accepted the token. She sent an open invite on the social-networking site Meetup and to a bitcoin community on Reddit. To her surprise, more than 60 people turned up at the event.
She described the attendees as “a wild cast of characters.” Economists, entrepreneurs who were creating bitcoin apps and games, and two founders of the arts event Burning Man were part of the crowd.
The dinner bill came out to a whopping $957, which she paid for in 10 bitcoins.
“I felt guilty at the time, making Yung Chen accept $1,000 worth of funny money, because it was unclear to me whether Bitcoin should be worth anything at all,” Hill said, referring to the restaurant owner.
As of 2020, the restaurant owner and his wife had retired from the food business. That may partially be because of their cryptocurrency earnings. They hold about 41 bitcoins in total, or $902,000 today.
Bitcoin has had a wild ride this year, hitting record highs more than twice in the past month. The digital asset was trading at about $23,235 on Thursday.